South African contractors such as WBHO, Aveng, and Murray & Roberts (M&R) now generate substantial portions of their revenue in Australia, where the slowdown in mining investments is impelling contractors to diversify those businesses.
The South African and Australian markets are similar in that public sector investment is fairly stagnant, while margins across a number of sectors are under pressure. Contractors are focusing on sectors such as buildings, transport and oil and gas, or diversifying into other Australasian economies.
According to a Barclays Research note released last week, the bank's stock-take of the Australian housing market indicates that there is a growing backlog of homes under construction as builders have not kept pace with demand.
"This is largely due to a structural shift towards highrise apartments, which now account for a record 25% of (residential building) approvals." the research note said.
According to Barclays total construction fell in both the first and second quarters of the year, with mining-related construction continuing a downward trend although housing continues to do well and the non-residential building market appears to be recovering.
WBHO said in its results last week that demand in the Australian building market was being buoyed by Asian developers investing in residential apartments, as well as retail developers starting to deliver large developments to the construction market.
WBHO's order book in Australia more than doubled to R22.9bn at the end of June, compared with R10.8bn a year earlier.
The group's Probuild business has secured three large-scale, retail projects in Melbourne, two of which are worth more than R3.5bn. Probuild is also the preferred contractor on a number of residential towers, including a 77-storey block, according to WBHO. Not included in the R22.9bn order book as at the end of June are contracts awarded after the period in Probuild's newest market, Brisbane, worth R2.97bn.
WBHO's Chief Executive Louwtjie Nel said while Australia contributes towards 25% of WBHO's operating profit, the firm wants this to rise to a morethan 30% over the next two years.
M&R reported last week that the investment boom in Australia's liquefied natural gas sector is slowing, and the firm was doing fewer greenfields projects but more short-term service work. M&R is SA's largest listed contractor and has a big presence in Australia's oil and gas and commodities sectors through its Clough subsidiary.
Aveng says despite the slowdown in mining-related infrastructure spend in Australia, the market still offers good opportunities, particularly in transport-related infrastructure, and oil and gas pipelines.
Source: Business Day via I-Net Bridge
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